Q1 2022 Grupo Financiero Galicia SA Earnings Call

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Please standby we're about to begin.

Good day and welcome to the Grupo Financiero Galicia first quarter 2022 earnings release Todays conference is being recorded at this time I'd like to turn the conference over to Pablo <unk>. Please go ahead.

Thank you.

Good morning, and welcome to this conference call.

I will make a short introduction and then we'll take your questions.

Some of the statements made during this conference call will be forward looking statements within the meaning of the safe Harbor provisions of the U S Federal Securities laws.

Although subject to risk and uncertainty that could cause actual results to differ materially from those expressed.

According to the monthly indicators for economic activity in my view.

The Argentine economy recorded a nine 1% year over year expansion due in February .

Even though the economic recovery, which is 7% during the first two months of the year.

2022 we'll then we'd figure was closer to three 5%. According to the market expectation of a survey published by the Argentine Central Bank.

During the first quarter the primary deficit reached <unk>, 3% of GDP.

And in 2021, the primary deficit amounted to two 1% of GDP.

Including revenues from the so called media stocks.

Yeah mix is done.

We done without them the primary deficit stood at three 5% of GDP.

The National Consumer price Index recorded a 16, 1% increase in the first three months of the year are reached 55, 1%.

Aviation is March.

The highest rate of the last 30 years.

On the monetary front, the Argentine Central Bank expanded the monetary base by 270 billion pesos in the quarter recording a 45, 2% increase in the last 12 months.

Meanwhile, the exchange rate average.

Nine point.

46 pesos per dollar in the quarter.

Increasing seven 4% against the average for December .

When compared to March 2021 and then so on the 116.8.

Percent devaluation.

In terms of interest rates doing since you tend to do their work several increases.

In March the average rate on peso denominated private sector time deposits for up to 59 days was 43, 3% around six percentage points higher than the average recorded throughout 2021.

Well I would take those deposits in pesos amounted to $8 five trillion pesos in March increasing 10% nominal tons during the quarter.

7% in the last 12 months.

Time deposits in pesos Rose 19, 3% during the quarter of 56% in the last 12 months and peso denominated transsexual deposits.

Two 3% and 58, 5% respectively in the same period.

Private sector.

The deposits amounted to $15 $3 billion.

Decreasing to your 0.3% during the quarter.

Three 6% in the last 12 months.

During March peso denominated loans to private sector average four four trillion pesos increases increasing nine 3% in the quarter.

52, 7% when compared to March 2021.

Private sector dollar denominated loans amounted to $3 9 billion.

Recording a six 7% contraction during the first quarter only 20.

24, 7% reduction when compared to March 2021 all figures to be nominal.

Turning now political financiero Galicia net income for the first quarter amounted to $5 2 billion pesos.

Up 51% from the year ago quarter, mainly due to brokerage from Banco Galicia for $4 7 billion pesos from the least yes. It manage it might've been unfortunate that 876 million pesos.

Well, it's just the orders for 235 million pesos and something that I've got X four 5 million basis.

This profit represented a one 1% annualized return on average assets and a five 9% return on average shareholders' equity.

Banco Galicia net income for the quarter was they haven't got a 53% higher.

In the year ago quarter.

Due to a 61% higher operating income offset by a 56% higher loss from the net monetary position.

The net operating income increased 23%, mainly due to a 49% increase in net result from financial instruments.

Offset by a 7% lower net interest income.

Interest income growing 4% you were a Europe wide interest expenses increased 7%.

Mainly due to higher rates on time deposits.

Average interest, earning assets were down 4%, reaching one 2 million pesos.

Mainly due to a decrease in the average volume of loans in.

In the same period, it's you increased 750 basis points, reaching 45%.

Interest bearing liabilities decreased 2% from the first quarter of 'twenty to 'twenty, one amounting to 932 b pieces.

This decline was due to a decrease in the average biological dollar denominated saving accounts.

I've said, but you're an increase of peso denominated deposits.

During this period its cost increased 891 basis points.

21 21, 75%.

Net income increased 12% from March 2021, mainly.

Mainly due to higher fees on deposit accounts and credit cards on our utility business collection services.

Net income from financial instruments increased 49%.

Due to higher results from government securities from private sector Securities.

The latter as a consequence of the sale of the remaining shares increased milk.

Gains from gold and FX quotation differences were up 3% from the year ago quarter, including the results from foreign currency trading.

As regards to provision for loan losses, the amount for the quarter was 62% higher than those reported in the same quarter of 2021 reaching $2 2 billion pesos.

Personnel expenses were 8% lower than in the first quarter of 2021.

Primarily due to a 6% decrease in stuff, while administrative expenses increased 5% compared to the year before.

Due to increases in higher up and he said he it services in maintenance and repair of goods and a T I D.

In publicity promotion on research expenses.

Other operating expenses for the quarter totaled $10 9 billion pesos, 9%.

Below the amount recorded in the year ago quarter.

The income tax charge of 21% higher than the first quarter of 2021 with the effective tax rate being 35%.

The banks financing to the private sector reached 678 billion pesos at the end of the quarter down 10% in the last 12 months, mainly due to a 5% decrease of launch in pesos and a 43% decrease of dollar denominated loans.

Exposure to public sector increased 23% year over year.

It's really the exposure to the Central Bank made exposure represented 19% of total assets compared to 7% as of the end of the first quarter of 2021.

Deposits reached 1.1 trillion pesos, 2% lower than a year before we bought out the bullshit falling 24% in peso deposits rose 5%.

The bank's estimated market share of flow to private sector was 12, 1%.

61 basis points lower than at the end of the year ago quarter.

On the market share of deposits from the private sector was 10, 2% 32 basis points higher than in the same quarter of 2021.

As regards asset quality the ratio of nonperforming loans to total financing ending the quarter up three point, 11% recording 148 basis points deterioration.

Compared to the 163% of the first quarter of the prior year.

At the same time the coverage with allowances reached 880% down from the 391% from a year ago.

As of the end of March 2022 the banks to get there.

Capital ratio reached 24% decreasing 52 basis points from the end of the same quarter of 2021.

The bank's liquid assets represented 13% of Transexual deposits and 63% of total deposits up from hanging around.

5% and 58% respectively from a year before.

In summary in a very challenging and volatile macro environment, Grupo Financiero, Alicia will save them to keep asset quality liquidity and solvency metrics at very healthy levels, while profitability was negatively affected by the very high inflation of deepwater.

We are now ready to answer the questions that you may have.

Thank you.

Thank you and if you would like to ask a question. Please press star one on your.

Telephone keypad, if you're on a speakerphone. Please pick up your handset and make sure. Your mute function is turned off.

What you're saying now Richard our equipment.

Again, it is star one if you would like to ask a question.

And we'll go ahead and take our first question.

From our National government <unk> with Bank of America. Please go ahead.

Hi, Good morning, Pablo her crank here for your questions girlfriend, I have a pretty questions on my side referred wanting hunger political Lauder comfort.

With all of them what are the later politically ban.

Occurring for regulation that could be impacting the banking crooker, Oh I'm sorry.

You can learn from those parts of the group.

And also I believe.

But I will I prefer Gary Clark.

On the home are you seeing a group a group call Persevering health workers.

That's my first question and then my second question.

Good for her long on deposit growth computer in Europe , well in play here for growth.

And then my last question.

Oh like with your purview hallmark.

We're gonna Brenner crude from the nonrecurring going from Piedmont, and how much do you expect to receive.

Quater.

Okay. Thank you.

First the political outlook.

You can't go and difficult to predict.

The main opposition I would say is within the government a coalition.

Right now between the precedent and device prescient.

There are many.

[laughter] fights on accusations.

In Ireland.

Actually in some Congress in session the some initiatives.

Sent by the Brookfield were approved by the day.

The real a procedural I mean.

Some members of the Congress of the current government and approve it.

Even for example.

And the these covenants at Gorgon and coalition.

Losing okay.

Since I will say is support and approval.

This week there was some a false saying that it's 20.

20% of the population approves it.

And as the government.

Also that the image of Iraqis have Isa.

He is at the lowest level since many years at 25% of the.

Positive.

Mitch.

And in your position.

I'd say cambium, Austin do not reacting to it but really caused other smaller parties a coalition.

And there are also some discussions with most of the political rallies and say is that they are.

And I would say competing for the for the next year, Brian Morris, but once they reach a winner everybody will be together.

And the last comment on the political I would say the environment is that the opinion itself have you gotta millet.

And the economy.

Tell you leave it out or if there is obviously economies.

It also looks totally economy.

Economists that and he's having a lot of support.

The only in center right.

Higher income people, but also in the lower part of the population lower income parts of the population.

And basically I guess he has his speech against the politico.

As he says he says that.

The Congress is to expand and Steve you got all the politicians are and worried about raising taxes and nuts and fostering economic growth.

Some analysts are saying that the opinions of millet is as a result of the.

Population being tired of the old <unk>.

Politicians.

Next year, there would be presidential elections in October we will have probably already as you know, but many provinces will.

Begin having there are elections.

In March and so we would have it fully next year of election on Sunday or we will see.

It's clear who will be the lead.

Candidates for each policy.

And so you can watch alone [laughter] political outlook in terms of regulation that the central bank already.

I would say rich in terms of regulation we have.

Meaning minimum rates caps on other rates and regulation on dividends on certain fees.

And we don't foresee any further regulation was the last time in relation to.

The launch was the prohibition on banks to sell a crypto currencies Gunkel, how do you feel what was the first bank to launch that alternative for their clients.

Yeah.

Later that week, the Central Bank, It said that it wasn't allowed for bats.

And well go into the second questions loans and deposits.

And then our expectations on inflation, it's a moving target it three months ago, our chief economist was forecasting 55% annual inflation with the last two months readings right now most of the economists are forecasting 65% inflation.

And the higher inflation.

It's harder to grow in real terms.

Right now our expectation for deposit growth is around 62, 63% gross so some percentage points below inflation.

Loans from 62 to 65, so I would say.

Equal to inflation or slightly below inflation.

So basically following the commonality there.

The working capital on the consumption follow the nameplate.

Inflation.

In case of it. Please know we finished with the sale of our <unk>.

Holding in that company, we used to have.

So they are 15% of the company, we sold three years ago seven six.

In February the seven four so you will not see any farther than we thought.

And then in the P&L then we informed that the impact was positive in this first quarter of 2.7 billion pesos.

Oh, Google Hooper Cryptococcal Pablo.

Look you're not quite sort of a good run.

I just wanted to double check.

Uh huh.

And when do you expect.

Drilling deeper.

Yes.

Then the shareholders approved in the.

End of April in shareholders' meeting.

The payment of up to 19 billion pesos.

We already paid 11 billion pesos.

And X D. V. Then days NASDAQ was last Friday the 13th.

And and while most of the of the brokers and banks.

Already paid to the ADR holders or or are in the process of bidding them.

And the idea is to pay 4 billion pesos in September . Additionally, on other 4 billion pesos in January .

Peter.

Yeah.

Okay perfect. Thank you very much Paolo.

Youre welcome.

And we'll go ahead and take our next question from Jason <unk> with Scotiabank. Please go ahead.

Hi, Pablo.

Thanks for the call.

These are challenging times are in lots of places, but in particular in Argentina and we appreciate.

At least she is commitment to.

Communicating with the market and take them.

Our questions.

My first question I guess would be on competition.

And how you are seeing I mean, they're not your traditional incumbents.

Feeding them.

Is there pressure on pricing or in this environment. It really is about service and maybe you can comment on the new entrants.

And the banks are the neo banks or banks that don't have branches.

And secondly, maybe in these tough times it would be interesting to hear what what's got lease he is thinking.

About a positive.

Outlook or what is the positive scenario like how can we lay out a path.

To getting inflation down.

And then moving towards a real growth and and especially for the banking system like what what what are the positive factors. If we wanted to highlight on what could go right.

And make things good for the banking system anchor leasing in particular.

Okay.

J M.

Well in terms of the competition.

In coming months.

Our I would say.

Very strong on the.

It represents most of the volume and market share.

There are some small view.

Fewer digital designs that really are very very small.

And in this context of a lack of capital for many.

These new companies that are.

Bet on growth.

And they didn't use to pay much more attention on profitability.

I think when we look back.

The only big competitor East medical apparel, but and I.

I would say that the reach some part of the population that used to not to be so banca right, mainly some smaller merchants.

And so they they helped.

To increase the.

They're gonna conversation.

And in the case of one of the digital buying small digital lunch was purchased by <unk>.

We the bank yellow small digital wonky, sberbank, but really they they are nuts and.

Big or they are nuts.

A threat right now in my opinion not in the in the medium term.

Many of these new <unk>.

Company.

And not only in the Fintech environment.

You are thinking in and growing.

Some of them, becoming a regional player and then.

Exiting.

No. So the incumbent banks are very strong in the marketplace.

In terms of the the positive outlook.

And I think.

Right now.

Not only the macroeconomy.

Is it challenge, but it is very related to the political.

Certainty in these disputes within the government.

And what will happen next year.

Most of the well he began analyst tend to say that there would be a change in the color, but we we need to see how these provincial elections take place and what are the candidates and how old the depots and evil.

In my opinion is the political.

Certainty it cost the lack of confidence so there are many investment decisions or postpone and.

And.

There is like busy vegetative growth and diverse in different sectors of the economy.

To have a positive outlook in my opinion, we need.

Changing this eh.

Somebody has to have more certainty from a political standpoint.

I'm going to the economic.

But I think inflation is key.

Order to reduce inflation you need to have.

The lower <unk>.

All of them are expenses or I would say not a fiscal deficit.

As I said lower expenses, because taxes had already high.

But in.

In many times, Argentina, and if I would say.

So price everybody with the quick changes for glue them for about so there could be if there are good signals in the political environment.

The environment are you seeing the market changes could be faster than that of what we could imagine and the financial system is key.

In Q2 to allow the economy to grow.

In the last three years the loans to GDP have been.

The ratio has been going down.

We all banks are illiquid.

A strong solvency times have good asset quality. So we would be also very.

And well prepared to do a rebound in the in the loan demand.

That's helpful is there you know any comments on how to address this inflation I mean is it the traditional.

Hiking rates, even more or there needs to be a change.

In the structure in general I mean, like a big a big change for Argentina or is it just traditional going back to you know the change in the model or is it you know we need to see rates.

I mean, they're already high of course, but but in real terms, maybe you know much more negative.

Our positive excuse me, if they really raise them.

Well above where where inflation is that is that that is that's the path.

To get Argentina's inflation under control.

Well with the current government they tend to.

A race.

The rates the leak rates.

Proactive line right the Greek gods, all the time deposit rates, but once we have the high <unk>.

Inflation readings of the mine. So we are they are robbing from behind I would say on the.

We are also.

Trying to get agreement price agreements, having some gaps.

Caps on certain products and it's really a recipe that many times.

Finally in the past.

But when you speak with the most of the economies if theres all economies. They tend to say that this is an issue of a fiscal deficit. So I think there is an agreement there, but we will need to see a change in government in my opinion to see this guy.

Policy.

Thank you for your perspective, a problem no.

And we know it's difficult.

Okay. Thank you Jason.

And we'll go ahead and take our next question from Carlos Gomez with <unk>.

Please go ahead.

Yes. Thank you Paolo two questions. The first one on pre smoked you said there was a 2.7 billion impact could you. Please go ahead Sir.

Pretax or after tax when they have said it before but they didn't need here.

Second.

Is that a noncompete agreement with Christmas and after he expires is unwilling to reenter the market what are your plans currently.

And finally, what would you say the chances are that you can place them, there's not only higher but we actually run into hyperinflation Hunter kind of 200, 300%.

What is the probability it would depend too to protect itself.

Thank you.

[laughter] Hey, he's got lost.

Well the the the $2 7 billion and based.

Based on results from Prisma.

If after tax because there weren't.

In the accounting that we're indifferent.

License they had different effects and we had not only in kind of talks about also say is that so.

To have it.

Seemingly a simpler we said $2 7 million, but yes its after effects.

In.

We right now a reason why you see the supplier.

And it's not really in the medium term plans to two to enter into that market.

And we have other let's say a priority going forward.

In terms of inflation and nuts.

I didn't see any signal economies.

Speaking about is such a high loss scenario in terms of Oh T. Three visits inflation.

Media and of the market you said 65 some.

Yeah.

At least I was saying 60 other seventy-three. Besides the range. This is the range.

And.

The next months and most of the economies has seen a declining inflation from $6 76 to five point tool and going back to the four or three 9% level.

And I think the immediate stuff economy understands.

The.

The issue.

And he had many.

In greatly X from the government coalition, but the press release.

Supporting him or backing him so.

And we don't see that bad scenario.

Thank you and what are we doing to protect sorry.

<unk>.

You can see that our exposure to the <unk>.

Public sector has been increasing.

The increase is basically in CPI bonds are Sarah adjusted bonds.

So that we earn.

When we have a rising inflation, we have a higher.

In interest income.

The thing is that there is a this is a technicality there is a two month lag.

You adjust by inflation in the accounting and when you begin accruing the inflation with your bonds. So whether the March figures you adjust with the March CPI, but you have a two month lag to two two to receive.

This high inflation readings in your bonds. That's why the coverage wasn't seen in the first quarter is likely to be seen in the second one.

So that the monetary loss should be smaller.

Okay.

Thank you so much.

Well take our next question from I agree, though that's currently.

<unk> partners. Please go ahead.

Yeah.

Hi, good morning, and thank you for the opportunity of asking questions. So you have inflation in the first quarter around 16%, which a nursing impacted the group's them take their profitability.

We'd have to accumulate scenario ambitions for this quarter, what should we expect from your different subsidiaries.

I mean, what can or should be different to see a different picture.

The following quarters.

And if you could comment in particular on the recent dynamics for format on car X.

It seemed to have suffered the most thank you.

Yeah.

All right.

Well, it's a way to protect against this inflation is two approaches public sector bonds tied to CPI. The they brought him as this two month lag.

Between.

You have to adjust by inflation your numbers and you begin accruing the same high inflation. So a.

The 6.7% inflation, we saw on March will be.

Calling our bonds. He beginning in May so these two two months in.

<unk>.

That is what we have been doing and.

The other thing that will help to reduce the negative.

We saw due to inflation is to reduce the their network with the payment of dividends is that helps.

And in the case of that anchor.

I'm not I don't have the traditional <unk> company.

Actually the credit card company.

It has a positive net income of roughly $1 2 billion pesos.

The 5 million pesos was due to the other.

So she already is that basically it.

Tied to the fact that the acquiring business it purchases the B O B O S and they gave it.

For free to the merchants, so it's kind of.

Part of the.

There is the investment periods of that business.

For this year, we are foreseeing.

A positive result.

All of the companies.

Perhaps not at the same level.

He was here, but we are definitely.

Positive I have to give you a number perhaps.

Closer to 10% or are we.

Okay. Thank you.

Youre welcome.

Okay.

And as a reminder, star one.

Good question.

We'll go ahead and take another question from Carlos Gomez. Please go ahead.

Okay.

Yes, a couple of follow up on the inflation linked bonds. Since you mentioned that that is the recent where I think just not just me. So high this quarter could you, perhaps quantify the impact of that I mean, the bonds have been.

How did it impact in the same month, what we've been pushing that gentleman has been just to have a sense about what where where we would be in on a more normalized basis.

Yeah.

And I'll give you a quick bulge figure.

Being in Europe , and third E V E M pesos.

Net monetary position result, it could have been around 24 billion.

The thing is that many many things.

James.

So I don't know if it's.

Completely.

Yeah.

Through for the second quarter, but this is a to give you.

The basic number.

Yeah.

Okay and on the other hundred clubs to seven positive from prison that which is obviously is not going to do a.

Franco.

Mhm.

Okay.

Thanks again.

Youre welcome.

And it appears we have no further questions and I would like to now turn the call back over to Paul.

Okay. Thank you for attending this call. If you have any further questions. Please do not hesitate to contact us good morning Bye.

Got it.

And with that that does conclude today's call. Thank you for your participation you may now disconnect.

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